Tag: personal tax

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2020- Why This is the Year You can Profit from a CPA Partner

Do you fit in one of the following categories?

  • A business owner (regardless of size)
  • Self-employed
  • A business owner who received COVID-19 related SBA loan proceeds
  • An employer who took advantage of COVID-19 payroll tax incentives
  • An investor
  • A real estate owner
  • A recipient of income from partnerships and/or s-corps
  • An individual with significant out of pocket medical expenses
  • An individual who received and/or sold inherited assets

If you fit into any of the above categories, or believe that your accounting/tax situation includes some complexity this post is for you.

We all know that this has been a crazy year in terms of not only our national public health, but also in terms of our economic and business environment. During 2020 we have all seen an abundance of tax-related legislation introduced surrounding the COVID-19 pandemic crisis response. By now we have all grown familiar with hearing the terms PPP, EIDL, payroll tax deferral, employee retention credit, sick and family leave credit, and many more. Prior to 2020, these were unknown terms. Much of this legislation has also been revised a few times throughout the year, and has continued to grow increasingly more complex as 2020 has advanced.

If you are a complex individual, a business owner, or even someone with a “side gig” who has thought many times about extending your business partner reach by working with a CPA firm for accounting and tax preparation, this may be the right time. Due to the newly enacted tax regulations surrounding all things COVID-19, as well as the continuation of the regulations put in place through the Tax Cuts and Jobs Act (TCJA) this is a great time for you to establish a relationship with a trusted advisor who can help you navigate these complex times.

Why a CPA Firm?

I get the question quite often, “Why a CPA firm? Can’t someone who is a tax preparer just do my taxes?” Although it is true that someone who is a “tax preparer” can prepare and file your taxes for you, the greater question you should ask yourselves is, “What level of education, professionalism, and proven dedication to a profession should be important to me in such a volatile season while I am considering a partner?”

CPAs have not only achieved a great deal of formal education and certification that proves their dedication to a profession of serving the best interest of clients, but CPAs are also required to obtain 80 hours of continuing education every two years to maintain licensure. It is through our continuing professional education requirements that we focus on learning complexities of the ever-changing tax law/accounting regulations and how to apply these to best assist our clients in their unique situations.

Only CPAs are held to this high standard of continuing education.

I’m Interested, What Next?

Our firm, Bynum CPA, PLLC and our bookkeeping subsidiary company Arc Accounting, PLLC, would like to earn your business as your trusted advisors during this season. If you are interested or know someone who may be interested in tax planning, tax preparation, business bookkeeping, or payroll services please reach out to us.

You can email us directly at info@bynumcpa.com or head over to our website and fill out a contact form. Following that, we will reach out to you to arrange a time to chat about your needs either in person or via video conference.

As always, we are striving to serve our clients well and would welcome you as one of our own.

-Wes

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Retirement Savings Beyond the 401(k)- Series Introduction

One common question that I receive from individual tax clients and my wife (Megan) gets from financial planning clients is, “What retirement savings options are available to me outside of an employer sponsored retirement plan?” A few of the reasons why someone might be interested in other types of personal retirement accounts can include investment choice flexibility, potential tax savings, or becoming self-employed.

This is a very important topic and I want to spend plenty of time thoroughly explaining the ins and outs of some of the IRA types that exist, so we will be working through this in a three part series over the upcoming days. We will cover these three key segments of IRAs and how each could benefit you:

  • Roth IRA
  • Traditional IRA
  • SEP IRA/SIMPLE IRA

We will discuss the qualifications of who can participate, dollar limits, income phase-out concepts, and why some of these might be a good option for you whether you are an employee who is already in a 401(k) plan or if you are self-employed and need to focus on putting back some money for retirement.

I hope that you will “Like” the Wisdom of Wealth Blog Facebook page and visit the Wisdom of Wealth website to sign up for notifications of new blog posts. I am excited to share some valuable information with you throughout this series, and hope that you will follow along!

Thanks for your support!

-Wes

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Retirement Withdrawals and The CARES Act

In response to the COVID-19 pandemic, Congress passed into law the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). There are provisions in the CARES act that are intended to benefit the hardships faced by many businesses, as well as COVID-19 related challenges faced by individuals and families. One such provision included for the benefit of individuals is the ability for “qualified individuals” to avoid penalty for withdrawals from retirement savings and also increased the allowable amount of loan from a 401(k) plan from $50k to $100k.

Who is a “qualified individual”?

A qualified individual is broadly defined as anyone who has suffered adverse consequences due to the Coronavirus. This can mean that you were physically impacted by you or a close relative having been diagnosed with the Coronavirus. It can also mean that you were negatively affected from a financial perspective due to loss of job, loss of hours, decrease in wages, change of role, layoff, furlough, etc.

What is the benefit?

An individual can avoid the 10% early withdrawal penalty that is normally assessed on a retirement plan withdrawal made prior to age 59 1/2 (or the 25% penalty on SIMPLE plan withdrawals). Funds withdrawn from a plan under the CARES act provisions can be spread out evenly as income over the next three years, therefore lessening the tax burden faced in the year of withdrawal.

The CARES Act also increases the amount that you can take as a loan from your retirement plan from $50k to $100k if you are considered a “qualified individual”.

Final Thoughts-

The above mentioned CARES act was created to assist those who may be facing a difficult season due to the Coronavirus and need easier access to their retirement savings. Remember that it is generally not recommended to pull from retirement savings unless absolutely necessary due to the loss of future tax deferred earnings on your investments. Please consult your financial planner or CPA prior to withdrawing funds from your retirement under the protection of the CARES act provisions to make sure that you understand some of the more complex issues involved.

If you would like to discuss this in greater detail, please reach out to us at info@bynumcpa.com or via phone at (615) 896-2864.

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Home Sale and Capital Gains Tax…?

Due to the explosive growth of population and industry in Nashville, our geographic area has been in a very bullish housing market for the last 3-5 years. This is generally good news for the local economy since this means more families are moving into an area to fill available jobs, more homes are being built, more land is being purchased for development, more people are employed in building trades, etc. However, there are other questions concerning real estate transactions that arise for people in an area that has a booming real estate market.

Likely the most common question received by financial professionals in this type of economic climate is, “the value of our home has increased greatly since we purchased, and we want to cash in on the increase in value by selling the house and unlocking the equity. What does this mean for our taxes?” This is a very good question for homeowners who are considering the sale of a personal residence. Many of you have probably heard of the concept of capital gains tax, and this is the type of tax we will be discussing in greater detail.

First off, let’s clear up the definition of a “personal residence”, as this is the most important definition to understand when considering this transaction. A house has to be your personal residence for two of the last five years preceding the date of the sale in order to gain exclusion from capital gains tax. This means that if a home is sold for a gain (profit) in 2019, all (or a portion of) that gain is non-taxable if that specific house was your primary personal residence in any full two-year period of the last five leading up to the date of sale. A personal residence is defined as “where you ordinarily live the majority of the time”, and you can only have one main residence at any time.

A married filing jointly taxpayer can exclude up to $500,000 of gain on the sale of a personal residence, and a single taxpayer can exclude up to $250,000 of gain if the following three part test is satisfied.

  • Ownership– You owned the home for at least two years prior to the date of sale.
  • Use– The home was your primary residence (as defined above) for at least two of the five years preceding the date of sale.
  • Exclusion Period– You have not utilized an exclusion of gain for the sale of another residence within the two-year period up to the date of the sale in consideration.

If you do not meet the two year use and ownership test for the sale of your personal residence, you might still be eligible for a partial exclusion of your gain from capital gains tax treatment if one of the following is the reason for your sale:

  • A change in place of employment
  • Health-related move
  • Unforeseen circumstances

So.. What is capital gains tax?

If for some reason you do not meet one of the exclusion tests discussed above, but still decide to sell your home, your gain will be subject to capital gains tax. The capital gains tax is a preferential rate tax that is imposed on the sale of many types of property that we normally consider “investments”. There are two types of capital gains (short-term and long-term). Short-term capital gains are considered sales of investment property held for less than one year. These gains are subject to your ordinary income tax rate. Long-term capital gains are for property held greater than one year and are given preferential rate treatment at the rates discussed below:

  • 0% Rate (Single taxpayer $0-$39,375 taxable income, Married taxpayer $0-$78,750 taxable income)
  • 15% Rate (Single taxpayer $39,376-$434,550 taxable income, Married taxpayer $78,751-$488,850 taxable income)
  • 20% Rate (Single taxpayer $434,551+ taxable income, Married taxpayer $488,851+ taxable income)

If you sell your home and believe you are exempt from capital gains treatment on your gain, you may still receive a 1099-S form from your title company/closing agency and that form would require you to report the sale on your tax return regardless of exemption from capital gains tax implications since the IRS will also be receiving a duplicate of this form to match to your tax return!

This post covers the basics of the tax treatment of a home sale, but is not intended to cover all aspects of the tax law. As with most other tax topics, there are other exceptions/rules that apply to more complicated aspects of these transactions. It is always a good idea to maintain a client relationship with a CPA Tax Pro when engaging in this type of transaction. If you are considering this type of sale, and need CPA guidance and tax preparation services, reach out the me at wes@arcactg.com.